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http://www.mineweb.net/columns/american_notes/ogratiohigh.htm



Oil:gold ratio hits highest level this year
By: Tim Wood
Posted: '18-AUG-04 20:00' GMT


NEW YORK (Mineweb.com) -- Gold prices continue to lag the relative increase in oil prices pushing Tuesday’s ratio of the two prices to the highest level of the year and since August 1976. The ratio was 0.1177 before oil prices eased and the ratio fell back to 0.1151.

In the last 35 years, the ratio has averaged 0.0667. However, since the start of this year the ratio has averaged 0.0952. The ratio range in 2004 is unprecedented – it has remained above the 35-year 70th percentile the whole year and above the 98th percentile since 29 July.

The only precedent to recall is the period from May to November 2000 which produced an interim peak in oil prices and, shortly thereafter, the gold price began to rise. There was also a brief but less powerful peak between March and July 1982. The longest lasting period above the 98th percentile – where we are now – lasted from December 1975 to March 1977.

The ratio hit an all-time high, based on monthly average prices, of 0.128 in August 1976. It hit an all-time low of 0.021 in June 1973.

Oil prices rose again on Tuesday after the US Energy Department reported that domestic refinery capacity utilization rose as demand gasoline hit its highest levels this year. For the week ending last Friday, utilization stood at 95.8% compared with 94.7% the Friday before.

American fuel stockpiles also declined according to the report though it was a modest 1.3 million barrels to 293 million barrels.

Oil cartel OPEC is doing its best to talk down the oil price, obviously with little effect. OPEC spokesman Purnomo Yusgiantoro has forecast a 2005 price around $30 per barrel once the “Iraq premium” is removed.

Given the historical record, it remains to be seen what impact high oil prices will have on inflation. So far there is no meaningful trace of inflation in the official statistics, but it is glaringly obvious in the rapidly escalating operating costs of mining companies.

Consequently, gold bugs are keenly watching to see what unfolds in the coming months, keeping a firm eye on apparent parallels with the period after the 1973 oil shocks.

It is also notable that the August average real oil price will exceed the previous record set in 1990. The last time oil prices matched Tuesday’s inflation adjusted price of $42.61 was back in November 1984. If oil hits $50 a barrel that would equal the inflation adjust price paid in March 1983. To match the all time record of $67.75 per barrel, current prices would have to rise 57% to $73.94 per barrel.